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FINDING 2022-005 Subject: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds - Activities Allowed and Unallowed, Allowable Costs/Cost Principles, Period of Performance Federal Agency: Department of the Treasury Federal Program: COVID-19 - Coronavirus State and Local Fiscal Recovery Funds Assistance Listings Number: 21.027 Federal Award Number and Year (or Other Identifying Number): 2022 Compliance Requirements: Activities Allowed and Unallowed, Allowable Costs/Cost Principles, Period of Performance Audit Finding: Material Weakness Condition and Context The County had not properly designed or implemented a system of internal controls, which would include appropriate segregation of duties that would likely be effective in preventing, or detecting and correcting, noncompliance related to expenditures made from COVID-19 - State and Local Fiscal Recovery Funds (SLFRF). Prior to receipt of SLFRF award funds, all eligible entities were required to execute a Financial Assistance Agreement, which included the Award Terms and Conditions that recipients must comply with in carrying out the objectives of their award. Per the Agreement, the County was responsible for the effective administration of the federal award, as well as the application of sound management practices and administration of the federal funds in a manner consistent with the program objectives and the terms and conditions of the award. Recipients may use SLFRF funds for any eligible expenses subject to the restrictions set forth in sections 602 and 603 of the Social Security Act as added by section 9901 of the American Rescue Plan Act of 2021. The SLFRF program provides substantial flexibility for each recipient to meet local needs within four separate eligible use categories. Recipients may use SLFRF funds to: 1. Respond to the COVID-19 public health emergency and its negative economic impacts. 2. Respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of eligible employers that have eligible workers who are performing essential work. 3. Provide government services, to the extent COVID-19 caused a reduction in revenues collected in the most recent full fiscal year of the recipient. 4. Make necessary investments in water, sewer, or broadband infrastructure. Pursuant to the Financial Assistance Agreement, the period of performance for the award began on the date the funds were disbursed to the County and ends on December 31, 2026. Recipients may only use funds to cover costs incurred during the period that began on March 3, 2021 and ends on December 31, 2024. Recipients must liquidate all obligations incurred by December 31, 2024, under the award no later than December 31, 2026, which is the end of the period of performance. A single person received the invoice, prepared the claim, and reviewed the claim for approval prior to payment for the Helmsburg project paid with SLFRF funds. The claims were included with the regular claims docket for approval, but were not being specifically reviewed for allowable activities, allowable costs, or period of performance, with regards to grant requirements, by anyone other than the original preparer. The lack of internal controls was isolated to the Helmsburg project. Criteria 2 CFR 200.303 states in part: "The non-Federal entity must: (a) Establish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. These internal controls should be in compliance with guidance in 'Standards for Internal Control in the Federal Government' issued by the Comptroller General of the United States or the 'Internal Control Integrated Framework', issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). . . ." Cause A proper system of internal controls was not designed by management of the County, which would include segregation of key functions. Embedded within a properly designed and implemented internal control system should be internal controls consisting of policies and procedures. Policies reflect the County's management of what should be done to effect internal control, and procedures should consist of actions that would implement these policies. Effect Without the proper design or implementation of the components of a system of internal controls, including policies and procedures that provide segregation of duties and additional oversight as needed, the internal control system cannot be capable of effectively preventing, or detecting and correcting, material noncompliance. Questioned Costs There were no questioned costs identified. Recommendation We recommended that management of the County design and implement a proper system of internal controls, including policies and procedures that would provide segregation of duties to ensure appropriate reviews, approvals, and oversight are taking place. Views of Responsible Officials For the views of responsible officials, refer to the Corrective Action Plan that is part of this report.